Sugar market faces end of ‘surplus phase’

(Agrimoney) – The end of the “surplus phase” in world sugar supplies is nigh, and a “deficit phase” is approaching, but prospects look dim for now for any rally in prices of the sweetener, the International Sugar Organization said.

The ISO, in a quarterly update, sounded a reassuring note on short-term sugar supplies, hiking its estimate for world stocks at the close of for 2013-14 (on an October-to-September basis) by 3.1m tonnes to 77.8m tonnes despite acknowledging a setback to Brazilian output from drought.

A 475,000-tonne trim, to 39.6m tonnes, in the forecast Brazilian sugar production was offset by increases to forecasts for India and Thailand, while ideas of consumption were reduced, largely for India.

The ISO also raised estimate for supplies carried in from the previous season, leaving its forecast for world stocks as of the end of 2013-14, as compared with use, at 44.0%, up 1.8 points from its previous forecast.

‘End of the surplus phase’

However, the ISO forecast that production and consumption would be “neatly balanced” next season, with output from top producer Brazil curtailed by financial woes facing mills, besides by drought.

“The number of mills in operation in Brazil is shrinking, the tools available for the government to help the industry are less evident, and many of the large milling groups are reporting higher debt,” the organisation said, estimating a drop in output from the key Centre South region of 900,000 tonnes to 33.4m tonnes next season.

World demand, meanwhile, is seen growing at its average pace of 2.2%, “heralding the end of the surplus phase in the world sugar cycle”.

‘Deficit phase’

And in its first assessments for 2015-16, the ISO forecast “no considerable increases” in world production, against a background of a continued rise in demand.

The organisation gave little insight into details of its thinking, although it did forecast a 2.7% recovery in Brazilian output.

“The deficit phase may finally start developing,” it said, tentatively forecasting a production shortfall of about 4m tonnes.

That would be the first deficit since 2009-10, following an aggregate rise in inventories of approaching 25m tonnes in the interim.

Price impact

Indeed, the ISO was cautious on prospects for sugar price revival for now.

“Any price recovery on the back of a no-stock-change scenario in the next season might be muted by the huge stocks accumulated since the beginning of the surplus phase in 2010-11.”

Sugar for July, which opened higher on Tuesday, stood up 1.2% at 17.49 cents a pound in New York as of 13:00 local time (13:00 UK time).

Unica, the Brazilian cane industry group, is expected later on Tuesday to unveil data on the Centre South cane harvest during the last half of April.